Obama Budget Would Expand Low-Income Tax Break

The budget that President Obama is submitting to Congress on Tuesday includes an idea that has echoes of Republican efforts.

Gabriella Demczuk / The New York Times

By JACKIE CALMES

March 3, 2014

WASHINGTON — When President Obama releases his proposed annual budget on Tuesday, he will grab his best opportunity of the year to show, in one comprehensive package of hard numbers and precise detail, how he would have the government address what he has called “the defining challenge of our time” — economic inequality.

Many of Mr. Obama’s perennial proposals on education, job training, research and more have hit a Republican wall in Congress, but this year the president is adding one with echoes of Republicans’ own ideas. He will propose expanding a longstanding tax break to better benefit workers who are childless, which the White House estimates will help 13.5 million additional Americans who hold jobs yet remain poor. The current tax break favors low-wage workers with children.

Mr. Obama would offset the costs, $60 billion over 10 years, by ending two tax breaks for some wealthy taxpayers, as a Republican House leader also recently proposed as part of a broader plan to overhaul the tax code. The changes would close loopholes that lower taxes for some self-employed professionals and investment-fund managers.

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The White House had recently signaled that Mr. Obama’s budget for the fiscal year that begins Oct. 1 would embody Democratic priorities, shorn of unrequited concessions he made to Republicans last year in hopes of a bipartisan bargain on tax and spending. But by including the new tax-credit proposal and emphasizing its limited Republican pedigree, Mr. Obama is underscoring his struggle to set an agenda that stands a chance to become law, at least in part — in this case, to try to reduce inequality of incomes and economic opportunity.

“For the rest of my presidency, that’s where you should expect my administration to focus all our efforts,” Mr. Obama said in December. But in the sixth year of his administration and the fourth year of sharing government with the Republican House majority, more than ever he confronts Washington’s judgment that his budget is already dead on Capitol Hill.

So the White House is eager to draw attention to an idea that might be taken seriously, both in the news media and in Congress.

Advisers say Mr. Obama will propose to double a childless worker’s maximum tax credit to about $1,000 a year and increase the annual income level for qualifying for some benefit to about $18,000 annually, roughly 50 percent over the federal poverty line for a single adult. The credit would also be available to workers at age 21 instead of 24, as long as they are living on their own, and remain available longer, until the age of 67 rather than 65.

The earned-income tax credit began as a Republican policy decades ago to reward work and discourage welfare, and has been expanded through the years — by Mr. Obama and predecessors of both parties — mainly to help families with children. But for childless adults and those whose children are not in their custody, the credit has remained small and phases out at low incomes.

Making it more generous for such workers “just makes a lot of sense,” said David H. Autor, an economics professor at the Massachusetts Institute of Technology, especially as more young males have been dropping out of the labor force. “Many of them do not have dependents, or their dependents are with the mom. Giving them more incentive to work seems like an excellent idea.”

Mr. Obama, previewing the idea in his State of the Union address in January, said that few federal policies “are more effective at reducing inequality and helping families pull themselves up through hard work than the earned-income tax credit.” But he said he agreed with Senator Marco Rubio, a Florida Republican and potential 2016 presidential candidate, “that it doesn’t do enough for single workers who don’t have kids.”

While Mr. Rubio did call recently for more generous work incentives for single adults, that was about where his agreement with Mr. Obama ended. Mr. Rubio proposed to replace the earned-income tax credit, which comes to beneficiaries as an annual check, with a monthly federal wage supplement for low-income workers. His idea, for which he has not provided specifics, reflects increased hostility to the so-called E.I.T.C. among conservatives, who say that it has become in effect a spending program, vulnerable to fraud.

Representative Dave Camp, a Michigan Republican who is chairman of the House Ways and Means Committee, last week proposed an overhaul of the federal tax code that also would eliminate the earned-income tax credit. He would instead allow certain low-income workers to exempt the first $4,000 of their federal payroll taxes for Social Security and Medicare.

The liberal Center on Budget and Policy Priorities objected that a single mother with two children, who works full time at minimum wage earning $14,500 a year, would lose about $2,000 under Mr. Camp’s plan.

Other Republicans, including leading economists, have reinforced their support for the earned-income tax credit, and for increasing it for childless workers, especially as an alternative to Democrats’ separate proposal to increase the minimum wage, which Republicans oppose. But Democrats, including Mr. Obama, say both benefits are essential to help people who work escape poverty.

“What often gets lost in the political debate,” said Nathaniel Hendren, a Harvard economist involved in a long-term study of economic opportunity, “is the idea that we’re rightly concerned about budget deficits, but if you think that intergenerational mobility is the outcome that you’re aiming at with your policy, then you should not cut back on things that you think are helping get kids up out of poverty. Not only is that a good thing for those kids, but it’s also incredibly good for the government budget if you take the long view.”

Among other proposals that Mr. Obama will revive in his budget to improve the chances of upward mobility for lower- and middle-class Americans is one making preschool universal for 4-year-olds, paid for with higher tobacco taxes. He would make permanent a tax credit for college tuition, provide tax relief for those with federal grants or loans for college, and expand the existing tax credit for full-time workers’ child care costs.